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A bold technology turnaround of the sort that Steve Jobs engineered at Apple is rare, and it doesn't come from looking backward. Although Apple's venerable Macintosh computers recovered market share under Jobs, what saved the company and allowed it to thrive were the iPod, the iPhone, and the iPad, all new lines of business.

Mayer declined to talk with Barron's about her plans, but one approach she should consider is a full-court press on mobile, which is by far the fastest growing area of the Internet—and where Yahoo! could stake a fresh claim.

The bigger challenge may be to figure out what Yahoo! wants to be when it grows up. The company started life in 1994 and went public in 1996 with no mission other than the sardonic intent of being "a more efficient way to waste your time."

Yahoo! never found a real mission, but got swept up with the Internet craze. A succession of CEOs led it further and further from its tech roots, through the portal phase, the media-company phase, and finally into the has-been phase (see chart below).

In just five years, through 2012, Yahoo!'s share of the display-ad market fell to 9% last year from 18%, according to research firm eMarketer, and could fall again this year, to 7.7%, the firm predicts. Google's share of display ads in that time has surged to 15% from 2.9%, and Facebook's share has come from nowhere to 14.6% (see charts, Not a Pretty Picture).

Meanwhile, Yahoo!'s share of search-based advertising, even with the help of
Microsoftmsft -1.4357338195077485%Microsoft Corp.U.S.: NasdaqUSD43.25
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Volume (Delayed 15m)
:
18108927
P/E Ratio
17.29712Market Cap
359982101418.838
Dividend Yield
2.86752939217627% Rev. per Employee
728656More quote details and news »msftinYour ValueYour ChangeShort position
(MSFT), fell to 6.5% from 18% over that same period, while Google continued to dominate with 73% last year.

So far, Mayer has been as vague as possible about her plans. Her refrain on her first couple of earnings conference calls has been "Yahoo! is focused on making the world's daily habits inspiring and entertaining." That's not a strategy to hang one's hat on.

But the important thing is that "there are adults, finally, in charge," as Brett Harriss, who follows the company for Gabelli & Co., puts it, referring both to Mayer and to activist Dan Loeb of Third Point, who joined the board last year.

At $24.69, the shares fetch 22 times this year's expected earnings of $1.14 a share. In reality, they are much cheaper than that. Looking at the pieces, there is the Web advertising business—what's known as core Yahoo!—but there is also Yahoo!'s 24% stake in Alibaba Group Holding, the Chinese e-commerce company that Yahoo! acquired in 2005.

Yahoo!'s stake in Alibaba is worth an estimated $4.98 per share after taxes, and its 35% stake in the publicly traded
Yahoo! Japan4689.to -0.4166666666666667%Yahoo Japan Corp.Japan: TokyoJPY478
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2733570480000
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65523500More quote details and news »4689.toinYour ValueYour ChangeShort position
(4689.Japan) is worth $8.99. Additionally, Yahoo! has no debt and $5 a share in cash and marketable securities on its balance sheet. Back out those assets, and Yahoo!'s core business fetches just 3.9 times this year's projected $1.50 per share in earnings before interest, taxes, depreciation, and amortization.

That's less than what the New York Times and other musty old-media stocks fetch.

Some bulls think an Alibaba initial public offering could be worth far more than the $34 billion at which Yahoo! values the whole company—as much as $60 billion or more. At that price, you would be getting core Yahoo! for nothing.

"Two things are working for Yahoo! shares right now," says Gabelli's Harriss, who rates its stock Buy with a $33 price target. "One is the low valuation on Yahoo!'s core business, the other is an IPO of Alibaba Group."

It's expected that Yahoo! will sell half of its Alibaba stake in an IPO, which could come as soon as next year, an event eagerly awaited by Yahoo! bulls. "There's speculation Alibaba is just ready to go," says Harriss.

If Alibaba represents a catalyst for the impatient, the expectation of true investors is that Mayer will improve the fundamentals at core Yahoo! by as soon as this year.

Admittedly, Yahoo! shows few if any signs of such a revival at present. Revenue was up a fraction of a percent last year, at $4.99 billion, including a decline of 1% in Yahoo!'s display advertising.

Mayer noted that it was the first annual increase in revenue for Yahoo! since 2008. But given that online advertising is an expanding segment of an industry typically linked to overall economic activity, to have no growth amid an economic upturn is bad indeed.

Total Internet advertising dollars likely rose 17% last year for the top seven digital properties combined, according to eMarketer. Google saw 32% revenue growth last year, and double-digit growth every year prior to that, save for a modest 8.5% in 2009.

Mayer's visible efforts at this point appear to focus on "optimization," something she learned quite a bit about while at Google. In numerous presentations, Mayer has explained how little things could have a big impact. For example, a half-second delay in delivering search results, she's said, could slash search activity—and ad revenue—by 20%.

So, Mayer has championed things such as redesigning Yahoo!'s home page to be faster and simpler. Yahoo!'s e-mail program for Apple's iPhone has been overhauled, along with its app for Flickr, its photo-sharing service. Both are clean, slick, and have garnered early praise.

When Mayer was asked about her plan at a Goldman Sachs technology conference in mid-February, she offered similar sorts of tweaks. Yahoo! has perhaps 60 or 70 different kinds of applications, she observed, when in fact only a dozen are probably worth investing in. The implication is that she will kill many of those projects.

And the company's ability to serve ads could be improved. "Whenever, for example, you have the opportunity to serve an ad, and you don't, that's lost money, and this happens literally millions, if not billions, of times a day."

BUT A TURNAROUND AT Yahoo! is not going to be accomplished by just improving the old businesses. The best Yahoo! can probably hope to do is to stanch the decline in display ads and reinvent the company as a key player in mobile Internet, which tech watchers believe has already surpassed desktop use in the U.S.

Mobile ads bring lower prices than display ads on the desktop, which is an increasing concern for Google and Facebook. But Yahoo has lost so much market share in display ads that it almost doesn't matter what prices are.

It can float freely above the fray and serve as a technologist to all the application developers and publishers who would like to have a greater presence on phones and tablets but don't have the resources of a Google or a Facebook. With its knowledge of how to handle billions of data requests, and its knowledge of large-scale databases and clusters of servers that answer those requests, Yahoo! could get paid a fee to build, maintain, and host mobile applications for those companies.

Already there are signs that the company is going that way. Last week, The Wall Street Journal reported that Yahoo! has been in talks with Apple to expand the two companies' collaboration. It is evident as well in Mayer's hiring of some key technical talent, including former Nokia chief technologist Benoit Schillings.

In the meantime, there's the stock, which has some valuation support, and there's that tantalizing prospect of an Alibaba IPO.

If core Yahoo! can earn a more reasonable multiple of, say, seven or eight times projected Ebitda, it could push the stock to $31. Any improvement in the growth and profit outlook could lead to more multiple expansion, pushing the stock to perhaps the mid-$30s.